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Germany avoided a supply squeeze this winter, but what next?

Eylert Ellefsen
Archived blog post. This blog post has been transferred from our previous blogging platform. Links and images may not work as intended.

(Image from Vattenfall's coal-fired Moorburg powerplant, which was shut down on 31 December 2020.)

When Germany closed down 4.8 GW hard coal plants this winter, the impact could have been severe, but the average output from German coal plants during January + February increased year-on-year due to a positive clean dark spread. That escape from a capacity squeeze will be harder to avoid next year as more capacity will closed down.

Key findings covered in this blog post:

  • This winter’s highest imports level was 6.6 GW on Feb 11 due to very low wind power output and an hourly spot price close to 100 €/MWh.
  • About 4 GW of the imports were probably directly related to the coal plant closures at the end of 2020.
  • For 2022 and 2023 we estimate imports at such low wind incidents to increase by 6 and 11 GW respectively due to further reduced capacity, including nuclear phase-out plans.
  • The German supply situation and the market balance will become very challenging as and when the Energiwende plans are realised.

Production Jan-Feb 2021 vs 2020

To measure the impact of last year’s coal closures we need to look at the average power balance for the Jan-Feb period (MW/month). The numbers below assume that the demand effect of Covid-19 is negligible for 2020 and limited to a reduction of about 3% this year:

Average German power balance for January + February in 2021 versus 2020.

What stands out most is the 9.2 GW drop in average wind power, which has a huge impact on thermal production and net exchange with neighbouring countries.

Consequently, hard-coal production increased on average from 5.5 GW in 2020 to 6.6 GW in 2021, despite the closure of 4.8 GW coal capacity last year.

This is not as surprising as it seems, as very strong wind power output in 2020 contributed to a negative Clean Dark spread which suppressed hard-coal production, contrary to the Jan-Feb period this year.

German spot price, SRMC and clean dark spread.

There are still reasons for concern, however. In a situation with low wind, the withdrawal of 4.8 GW coal capacity could translate into 10 €/MWh higher peak-prices.

Reversely, had Germany not closed the 4.8 GW of coal capacity, Germany hard coal production would probably have been about 15% higher in Jan-Feb this year, which equals about 1 GW more on average (pr 7.7 GW in total).

Capacity outlook

Over the next few years, Germany will phaseout nuclear power while hard coal and lignite capacity will each be scaled down to 15 GW. This capacity reduction would lead to higher imports from neighbouring countries in so-called "Dunkelflaute" situations when the wind power output is low.

But will Germany be in a position to get the imports it needs?

According to the BundesnetzAgentur (BNetzA) we will see the following development in thermal capacity during 2021 and 2022:

Changes in German production capacity according to BundesnetzAgentur (BNetzA) in 2021 and 2022.

The net capacity reduction in Germany amounts to about 11 GW by 1 Jan 2023. This is huge compared to the 6.6 GW of imports this winter! To illustrate this point, see the power balance for hour 11 on Feb 11th.

Most thermal plants are running at their max. output, except for hard coal and hydro pumped-storage which both have approximately 2 GW of spare capacity left (ref. REMIT available capacity data).

Calculations for power balance in the "Feb 2021"-incident, and 2022- and 2023-scenario with reduced capacity.

Imports in the 2022-scenario are about 2.0GW lower than in the 2021-scenario when we compensate for the spare capacity of hydro and hard coal. But beware that the plant-availability could be even lower – by up to 5 GW (ref the REMIT scenarios).

By 2023, we calculate that Germany may need an unprecedented level of imports of between 12 and 17 GW in such “Dunkelflaute” situations. In such cases production capacity reserved for grid security may be used, and the power supply security maybe threatened.

Final words

The assumptions and calculations that have gone into this blogpost will be revised in the future, but the examples covered here clearly indicate that the German power balance will be stretched over the coming two years.  We will closely monitor the situation and update our forecasts in due course.

For continuous dynamic coverage and forecasts of all fundamentals for Germany and the rest of Europe, please feel free to ask for a trial of our service.

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